Japan's central bank today left its super-low interest rates unchanged for a third month in a row and announced it would pump more cash into the financial system to tackle a severe recession.
The emergency action, which will boost purchases of government bonds, is the latest action by the Bank of Japan in its battle against what is feared to be the worst economic downturn since World War II.
'Economic conditions have deteriorated significantly and are likely to continue deteriorating for the time being,' the Bank warned in a statement, as it left its key lending rate on hold at 0.1%, as expected.
The Bank of Japan will boost its outright purchases of Japanese government bonds to 21.6 trillion yen ($219 billion) a year, up from 16.8 trillion yen, in an effort to keep credit flowing during the economic downturn.
'It is likely that the markets will remain under stress in the new fiscal year (starting in April) given the severe financial and economic conditions,' the bank said.
The announcement came a day after the bank said it would lend up to one trillion yen ($10 billion) to commercial banks to cover risky debt.
The bank has trimmed official borrowing costs twice since October. With almost no room left to reduce its key lending rate any further, it is seeking alternative tools to spur lending.
Japan's economy logged its worst performance in almost 35 years in the last quarter of 2008, contracting at an annualised pace of 12.1%. Many analysts expect the recession to be the worst in the post-war era.
The Bank of Japan said it expected the economy to start recovering from the second half of the next fiscal year to March 2010, but it warned of significant uncertainty over the outlook.
